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🌇 Shutdown of the Delphi Daily

During periods of low activity, it becomes more important to focus on the larger trends and narratives that capture the vast majority of attention. To provide you with a deeper insight into what really matters, we’re setting up the Delphi Daily and introducing the Delphi Digest, a weekly in-depth dive into an exciting topic across crypto.

These weekly newsletters will be concise yet comprehensive, containing data and insights that go far beyond what you are used to with Delphi Daily. We thank you for your continued readership and hope for a smooth transition. This is our first edition of the Delphi Digest. If you wish to unsubscribe, click on here.

This is the Delphi Digest. Let’s dive into it.


🔍 The L2 Wars

The adoption of Layer 2 networks built on Ethereum has been impressive over the past year. In this case, the proof is in the fees: ~4% of Ethereum’s gas is now consumed by L2 contracts, up from less than 1% at the start of 2022. Additionally, L2s have flipped the Ethereum base layer to terms of transactions per second.

It’s a trend we originally explored in our Year Ahead for Infrastructure report, which has been unlocked for all readers. here (fair warning: this is an action-packed read that just can’t stop the alpha leak).

The main characters in this story are Arbitrum and Optimism. Together they represent more than 80% of the total value locked on the other side all L2s. After their launch in 2021, both L2s saw a dramatic increase in adoption – thanks to Ethereum’s deadly combination of faster speeds, lower fees, and rock-solid security.

After a blockbuster in 2022, the new year is off to a good start with combined daily transactions on Arbitrum and Optimism surpassing Ethereum on January 1st. 12, 2023. Over the past 6 months, combined daily transactions have increased more than 5x from 163K to 983K. However, over the past month one of the two main L2s is increasingly doing the heavy lifting in this combination.

Optimism’s daily trade count has steadily increased since March 2022 despite the bear market, reaching an all-time high of 800,000 on January 1. November 12, 2023. Meanwhile, Arbitrum’s daily trade count is down 49% from an all-time high of 576,000 on November 12. 8, 2022. However, TVL on Arbitrum has remained relatively stable since November 2022, while most other blockchains have seen declines.

Over the past year, Arbitrum has launched Odyssey, a program that distributed NFTs to accomplish various tasks. These NFTs were widely seen as the precursor to a potential airdrop. As DeFi people flocked to the chain like a moth to a flame, the chain came under heavy load, causing the team to suspend Odyssey. Later the nitro The upgrade was introduced for faster transactions, lower fees, and higher throughput.

Optimism has also had a fairly turbulent year. The L2 abandoned the first set of OP tokens, which caused frustration as some users were able to claim tokens before others and many claimants chose to discard them immediately. Later, the project was launched Quests, his own version of Arbitrum’s Odyssey. If you are interested, today is the last date to participate!

One of the first projects to commit to building on Optimism is Synthetix, which accounted for the lion’s share of Optimism’s TVL until the OP token grants went live. The shift to optimism has significant benefits for Synthetix, such as low-cost exchanges and accelerated oracle updates that have allowed the protocol to launch perpetual futures. Today, this product brings in the majority of all fees collected by Synthetix.

The total number of transactions on Synthetix has increased steadily over the past 3 months. Since then, the seven-day average transactions have increased more than 6 times, from 1,000 to 7.4,000, reaching an all-time high of 9.6,000 on January 1. 12, 2023. However, the total volume has decreased over the last 6 months, indicating an increase in exchanges of smaller banknotes. Since then, the seven-day average volume has decreased by -53%, from $42M to $20M.

Interestingly, almost all Synthetix transactions take place on Optimism, with Ethereum seeing less than 50 transactions most days. However, a significant portion of the volume continues to occur on Ethereum, indicating that a small number of whales are responsible for all the volume on Ethereum.

The deployment on Optimism has been extremely beneficial for Synthetix, and we expect other protocols to follow this path and roll out to L2s in the months and years to come, as they aim to capture a base of users as wide as possible. We explore these trends in more detail in our August 2022 Synthetix report, which is available for Delphi Pro members here. Here is an edited excerpt from the report:

“The lack of user adoption of Synthetix on the Ethereum mainnet has been a recurring criticism. Access to deep liquidity via 1inch and on-chain spot trading via Kwenta has not been enticing enough to attract More Users Over the past six months, mainnet users accounted for only 1.7% of all unique users within the Synthetix ecosystem.

The risks also extend outside of mainnet adoption. With competitive L2 networks now online, users leaving Optimism would put Synthetix at risk – which has currently put all its eggs in the Optimism basket. However, Synthetix v3 is looking to expand the growth, with atomic swaps intended to go live not only on other L2s, but also on EVM chains.


📅 This week in Delphi Research

NFT debriefing – January 2023

Keep up to date with the latest in NFT and Metaverse YH brings you the current state of the market in this monthly highlight. In addition to exploring some upcoming mints worth watching, it looks at how NFT traders are farming for an airdrop from the neighborhood’s newest market, Blur.

From Dutch Auctions to Open Editions: A Deep Dive into NFT Distribution Models

How can an NFT project get its tokens into the hands of the right community members, while ensuring the cash doesn’t run out? In this key piece, teng delves into various distribution models that NFT projects can use, such as standard coins, Dutch auctions, free coins, and more.

Bitcoin Update: Reflecting on 2022 and the Future

In this report, Aaron takes you through the state of bitcoin – including the two technologies dominating the discourse (Lightning and Taproot) and the turmoil facing the bitcoin mining industry. It also explores some key innovations such as the possibility of zero-knowledge accumulations in Bitcoin, which could bring complete Turing smart contracts to Bitcoin.


📖 Delphi reads

While traders on GMX are infamous for losing money, a tweet thread from @lookonchain identifies 7 addresses with a win rate of more than 80% on GMX. Caveat emptor: Copy trading relies heavily on borrowed conviction and this is essentially what got many FTX investors into hot water. Read more here.

Last week, we hosted a Twitter space where our analysts shared their key takeaways from 2022 and the market outlook for 2023. During a section on opposing views, one of our analysts said that Solana could make her comeback this year (gasp!). If you weren’t able to listen live, you can play the recording here or read Cliff’s notes here.


🔥 Meme of the week

Year-to-date, BTC is up 28% while ETH is up 31%. Enjoy the pump while it lasts because who really knows what tomorrow will bring.

Meme by @cryptunez.






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